In the case of any qualified employer plan, there is hereby imposed a tax equal to 10 percent of the nondeductible contributions under the plan (determined as of the close of the taxable year of the employer).

(b) Employer liable for tax

The tax imposed by this section shall be paid by the employer making the contributions.

(c) Nondeductible contributions

For purposes of this section—

(1) In general

The term “nondeductible contributions” means, with respect to any qualified employer plan, the sum of—

(A)the excess (if any) of—

(i)the amount contributed for the taxable year by the employer to or under such plan, over

(ii)the amount allowable as a deduction under section
404 for such contributions (determined without regard to subsection (e) thereof), and

(B)the amount determined under this subsection for the preceding taxable year reduced by the sum of—

(i)the portion of the amount so determined returned to the employer during the taxable year, and

(ii)the portion of the amount so determined deductible under section
404 for the taxable year (determined without regard to subsection (e) thereof).

(2) Ordering rule for section
404

For purposes of paragraph (1), the amount allowable as a deduction under section
404 for any taxable year shall be treated as—

(A)first from carryforwards to such taxable year from preceding taxable years (in order of time), and

(B)then from contributions made during such taxable year.

(3) Contributions which may be returned to employer

In determining the amount of nondeductible contributions for any taxable year, there shall not be taken into account any contribution for such taxable year which is distributed to the employer in a distribution described in section
4980(c)(2)(B)(ii) if such distribution is made on or before the last day on which a contribution may be made for such taxable year under section
404(a)(6).

(4) Special rule for self-employed individuals

For purposes of paragraph (1), if—

(A)the amount which is required to be contributed to a plan under section
412 on behalf of an individual who is an employee (within the meaning of section
401(c)(1)), exceeds

(B)the earned income (within the meaning of section 404(a)(8)) of such individual derived from the trade or business with respect to which such plan is established,

such excess shall be treated as an amount allowable as a deduction under section
404.

(5) Pre-1987 contributions

The term “nondeductible contribution” shall not include any contribution made for a taxable year beginning before January 1, 1987.

(6) Exceptions

In determining the amount of nondeductible contributions for any taxable year, there shall not be taken into account—

(A)so much of the contributions to 1 or more defined contribution plans which are not deductible when contributed solely because of section
404(a)(7) as does not exceed the amount of contributions described in section
401(m)(4)(A), or

(B)so much of the contributions to a simple retirement account (within the meaning of section
408(p)) or a simple plan (within the meaning of section
401(k)(11)) which are not deductible when contributed solely because such contributions are not made in connection with a trade or business of the employer.

For purposes of subparagraph (A), the deductible limits under section
404(a)(7) shall first be applied to amounts contributed to a defined benefit plan and then to amounts described in subparagraph (A). Subparagraph (B) shall not apply to contributions made on behalf of the employer or a member of the employer’s family (as defined in section
447(e)(1)).

(7) Defined benefit plan exception

In determining the amount of nondeductible contributions for any taxable year, an employer may elect for such year not to take into account any contributions to a defined benefit plan except, in the case of a multiemployer plan, to the extent that such contributions exceed the full-funding limitation (as defined in section
431(c)(6)). For purposes of this paragraph, the deductible limits under section
404(a)(7) shall first be applied to amounts contributed to defined contribution plans and then to amounts described in this paragraph. If an employer makes an election under this paragraph for a taxable year, paragraph (6) shall not apply to such employer for such taxable year.

(d) Definitions

For purposes of this section—

(1) Qualified employer plan

(A) In general

The term “qualified employer plan” means—

(i)any plan meeting the requirements of section
401(a) which includes a trust exempt from tax under section
501(a),

The term “qualified employer plan” does not include a plan described in subparagraph (A) or (B) of section
4980(c)(1).

(2) Employer

In the case of a plan which provides contributions or benefits for employees some or all of whom are self-employed individuals within the meaning of section
401(c)(1), the term “employer” means the person treated as the employer under section
401(c)(4).

2006—Subsec. (c)(6)(A). Pub. L. 109–280, § 803(c), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “so much of the contributions to 1 or more defined contribution plans which are not deductible when contributed solely because of section
404(a)(7) as does not exceed the greater of—

“(i) the amount of contributions not in excess of 6 percent of compensation (within the meaning of section
404(a) and as adjusted under section
404(a)(12)) paid or accrued (during the taxable year for which the contributions were made) to beneficiaries under the plans, or

“(ii) the amount of contributions described in section
401(m)(4)(A), or”.

Subsec. (c)(7). Pub. L. 109–280, § 114(e)(5), substituted “except, in the case of a multiemployer plan, to the extent that such contributions exceed the full-funding limitation (as defined in section
431(c)(6))” for “except to the extent that such contributions exceed the full-funding limitation (as defined in section
412(c)(7), determined without regard to subparagraph (A)(i)(I) thereof)”.

Pub. L. 107–16, § 652(b)(2), in concluding provisions, struck out first sentence which read as follows: “If 1 or more defined benefit plans were taken into account in determining the amount allowable as a deduction under section
404 for contributions to any defined contribution plan, subparagraph (B) shall apply only if such defined benefit plans are described in section
404(a)(1)(D).”

Pub. L. 107–16, § 637(b), in concluding provisions, inserted at end “Subparagraph (C) shall not apply to contributions made on behalf of the employer or a member of the employer’s family (as defined in section
447(e)(1)).”

Subsec. (c)(6)(A). Pub. L. 107–16, § 652(b)(1), redesignated subpar. (B) as (A) and struck out former subpar. (A) which read as follows: “contributions that would be deductible under section
404(a)(1)(D) if the plan had more than 100 participants if—

“(i) the plan is covered under section 4021 of the Employee Retirement Income Security Act of 1974, and

“(ii) the plan is terminated under section 4041(b) of such Act on or before the last day of the taxable year,”.

1997—Subsec. (c)(6)(B). Pub. L. 105–34amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “contributions to 1 or more defined contribution plans which are not deductible when contributed solely because of section
404(a)(7), but only to the extent such contributions do not exceed 6 percent of compensation (within the meaning of section
404(a)) paid or accrued (during the taxable year for which the contributions were made) to beneficiaries under the plans.”

Amendment by section 114(e)(5) ofPub. L. 109–280applicable to taxable years beginning after 2007, but only with respect to plan years beginning after 2007 which end with or within any such taxable year, see section 114(g) ofPub. L. 109–280, as added by Pub. L. 110–458, set out as a note under section
401 of this title.

Amendment by section 803(c) ofPub. L. 109–280applicable to contributions for taxable years beginning after Dec. 31, 2005, see section 803(d) ofPub. L. 109–280, set out as a note under section
404 of this title.

“(1) Section
4972(c)(6)(a).—Section 4972(c)(6)(A) of the Internal Revenue Code of 1986 (as added by this section) shall apply to taxable years ending on or after the date of enactment of this Act [Dec. 8, 1994].

“(2) Section
4972(c)(6)(b).—Section 4972(c)(6)(B) of such Code (as added by this section) shall apply to taxable years ending on or after December 31, 1992.”

Effective Date of 1988 Amendment

Amendment by section 1011A(e)(1), (2) ofPub. L. 100–647effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) ofPub. L. 100–647, set out as a note under section
1 of this title.

Section applicable to taxable years beginning after Dec. 31, 1986, with special rules in case of plans maintained pursuant to collective bargaining agreements, see section 1131(d) ofPub. L. 99–514, as amended, set out as an Effective Date of 1986 Amendment note under section
404 of this title.

Construction of 2001 Amendment

Pub. L. 107–16, title VI, § 637(c),June 7, 2001, 115 Stat. 118, provided that: “Nothing in the amendments made by this section [amending this section] shall be construed to infer the proper treatment of nondeductible contributions under the laws in effect before such amendments.”

Applicability of Amendments by Subtitles A and B of Title I of Pub. L. 109–280

For special rules on applicability of amendments by subtitles A (§§ 101–108) and B (§§ 111–116) of title I of Pub. L. 109–280to certain eligible cooperative plans, PBGC settlement plans, and eligible government contractor plans, see sections 104, 105, and 106 ofPub. L. 109–280, set out as notes under section
401 of this title.

Pub. L. 100–647, title I, § 1011A(e)(5),Nov. 10, 1988, 102 Stat. 3478, provided that: “In the case of any taxable year beginning in 1987, the amount under section 4972(c)(1)(A)(ii) of the 1986 Code for a plan to which title IV of the Employee Retirement Income Security Act of 1974 [29 U.S.C. 1301 et seq.] applies shall be increased by the amount (if any) by which, as of the close of the plan year with or within which such taxable year begins—

“(A) the liabilities of such plan (determined as if the plan had terminated as of such time), exceed

“(B) the assets of such plan.”

Plan Amendments Not Required Until January 1, 1998

For provisions directing that if any amendments made by subtitle D [§§ 1401–1465] of title I of Pub. L. 104–188require an amendment to any plan or annuity contract, such amendment shall not be required to be made before the first day of the first plan year beginning on or after Jan. 1, 1998, see section 1465 ofPub. L. 104–188, set out as a note under section
401 of this title.

Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and
1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 ofPub. L. 99–514, as amended, set out as a note under section
401 of this title.

Written determinations for this section

These documents, sometimes referred to as "Private Letter Rulings", are taken from the IRS Written Determinations page; the IRS also publishes a fuller explanation of what they are and what they mean. The collection is updated (at our end) daily. It appears that the IRS updates their listing every Friday.

Note that the IRS often titles documents in a very plain-vanilla, duplicative way. Do not assume that identically-titled documents are the same, or that a later document supersedes another with the same title. That is unlikely to be the case.

Release dates appear exactly as we get them from the IRS. Some are clearly wrong, but we have made no attempt to correct them, as we have no way guess correctly in all cases, and do not wish to add to the confusion.